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executive condominium houses

3 new tweaks to the Executive Condominium Scheme

In January 2013, MAS revised the Mortgage Servicing Ratio (MSR) to be capped at 30% of a borrower’s gross monthly income for loans granted by financial institutions for the purchase of HDB flats.

 

In June 2013, MAS introduced the Total Debt Servicing Ratio (TDSR) framework. The new frame work serve to cap a borrower’s total repayment liability to be not more than 60% of his monthly gross income. Hence assuming if a borrower draws an income of $10,000 a month, his total monthly debt commitments/repayments should not exceed more than $6,000 a month.

 

Since the introduction of MSR and TDSR, home buyers have skewed towards buying executive condominiums. Recent data have shown an increase in sales transactions, with developers selling 1240 executive condo units in Q3 2013 as compared to 932 units in Q2 2013, representing a substantial increase of about ~33% over the previous quarter.

 

Just as demand for executive condos seems to be ballooning, the Ministry of National Development yesterday announced 3 new tweaks to the executive condominium scheme.

 

1) Mortgage Servicing Ratio for Executive Condos

Effective today 10 Dec 2013, for EC units bought directly from developers, applicants getting a loan from financial institutions will have its mortgage servicing ratio capped at 30% of their gross monthly income.

 

The Total Debt Servicing Ratio (TDSR) framework was previously used for the assessment of an applicant’s EC home loan application.

 

This new measure is widely seen to affect and cool a developer’s selling price as a regular couple with the max combined ceiling income of $12,000 to qualify for an executive condo unit would only be able take up a max bank loan of $719,103 over a 25 years tenure.

 

Working backwards on an 80% loan to value ratio, the max purchase price the couple would be able to afford is $898,878. Buying any units above the max ceiling price of $898,878 would entail the couple forking out extra cash for the price difference.

 

In comparison to the TDSR framework, a couple with the max ceiling income of $12,000 with zero liabilities would qualify for a max bank loan of $1,603,403 over a 30 years tenure. The max purchase price of the flat the couple would be able to afford on an 80% loan to value ratio would be $2,004,253.

 

The new MSR framework for executive condominium would effectively curb bank lending and reduced the maximum amount of loan a bank or financial institution can grant to a couple by over 55% (assuming max income of $12,000 with zero liabilities).

 

2) Introduction of the HDB Resale Levy to the Executive Condominium Scheme

Under the HDB resale levy scheme, home owners who have previously bought a flat from the HDB or have taken up a CPF housing grant will have to pay a resale levy of between $15,000 to $50,000 when they buy the next HDB flat.

 

The purpose of the resale levy is meant to reduce the amount of subsidy a couple enjoy on their second subsidized flat to maintain a fair allocation of the public housing subsidies between first and second timers.

 

For more information relating to the resale levy, you may refer to http://www.hdb.gov.sg/fi10/fi10322p.nsf/w/SellFlatResalelevy?OpenDocument

 

3) Reduction in cancellation fee from 20% to 5% of the purchase price

Effective to home buyers for land sale projects taking place since yesterday 9 Dec 2013, the cancellation fee for EC buyers will be reduced from 20% of the purchase price to 5%.

 

This is consistent to the cancellation penalty applicable for HDB Build-To-Order (BTO) flats. Home buyers will now pay 15% lesser cancellation fee charge in the unfortunate event that they do not proceed with the EC purchase.

 

In summary, the new MSR limit will capped the amount of financing home buyers would be able to secure while the new applicable levy add as some form of additional buying "taxes" onto the executive condominium segment.

 

Analysts expect developers to come out with smaller units but with most EC buyers being family upgraders with kids, would they bite for a smaller home?

 

We have MSR in January for HDB, TDSR in June for private residential, commercial & industrial and it looks like the executive condominium will have its share of the cake just in time for Christmas.

 

Merry Christmas!

 

Related Links:

+ http://www.mortgagesupermart.com.sg/blog/18-q3-2013-singapore-real-estate-statistics-mortgage-supermart-singapore-1

+ http://www.mortgagesupermart.com.sg/blog/15-q2-2013-singapore-real-estate-statistics-mortgage-supermart-singapore

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mas cooling measures 2013Effective 29 June 2013, MAS have introduced a Total Debt Servicing Ratio (TDSR) framework to ensure consistency in credit underwriting for property loans granted by financial institutions to individuals. The individual is inclusive of sole proprietorships and investment vehicles set up by an individual solely to purchase property.

 

The new framework will require all financial institutions to take into account borrowers’ other outstanding debt obligations when granting a mortgage. This framework is meant to strengthen financial prudence among borrowers.

 

The new framework will also refine rules to patch up “loopholes” relating to the application of existing Loan to Value (LTV) limits that were introduced on 12 Jan 2013 to limit the financing quantum that financial institutions may grant to borrowers. These refinements seek to ensure the effectiveness of the applicable LTV limits were enforced diligently to cool investment demand in the Singapore property market.

 

Under the new framework, financial institutions will be required to compute the TDSR or the percentage of total monthly debt obligations to gross monthly income on a consistent basis of not exceeding 60% in debt servicing ratio, applied with a medium term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when computing the TDSR. The standardise medium term interest rate under the new framework is set at 3.5% for residential housing loans and 4.5% for non–residential property loans.

 

Other measures include a standardise 30% haircut to all variable income (e.g bonus) and rental yield and applying haircuts to any eligible financial assets taken into consideration in assessing the borrower’s debt servicing ability when converting them into income streams for computing the debt servicing ratio (DSR).

 

Measures meant to patch up existing “loopholes” on applicable LTV limits include:

  • Having all borrowers named on a property loan to be mortgagors of the residential property.
  • Guarantors who are standing guarantee for home borrowers are to be brought in as co-borrowers instead.
  • For joint borrowers, the financial institutions would use the income-weighted average age of borrowers when applying the rules on loan tenure. The income-weighted average age will be based on the borrowers’ gross monthly income. Lower LTV limits apply to a loan granted for the purchase of a residential property, where the loan period extends beyond the retirement age of 65 years or the tenure exceeds 30 years.

The overall introductions of the new framework are structural in nature for the long term. These are aimed at encouraging prudent financial borrowing by home owners and to standardise and strengthen credit underwriting standards used by all financial institutions. Analysts expect the new cooling measures to be subdued while developers and property agents have reported seeing similar crowds at showflat over the weekend today and yesterday. Personally, we see this more of a windows 7.1 patch than a new launch of Windows 8.

 


 

Appendix 1 - Second Quarter 1/7/2013 URA Private Residential Property Price Index

Q2 Private Residential Property Price Index

Appendix 2 - Second Quarter 1/7/2013 URA Non-Landed Private Residential Property Price Index

Q2 Property Price Index of Non-Landed Private Residential Property

Appendix 3 - Second Quarter 1/7/2013 HDB Resale Price Index

HDB Resale price index 2013

 

 

Related Links:

+ http://www.mortgagesupermart.com.sg/resources/mas-property-cooling-measures

+ http://www.mortgagesupermart.com.sg/resources/mas-new-measures-to-cap-loan-tenure

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